(Bloomberg) -- Big insurers who manage private Medicare plans are driving up seniors’ health costs, US Senator Elizabeth Warren said, urging the Biden administration to finalize new rules that would rein in how much the program pays companies.

Insurance companies that operate private Medicare Advantage plans routinely make patients appear sicker to get bigger payments, Warren said in a letter this week to top US health officials. Unlike traditional Medicare, which pays caregivers for each medical service they provide, Advantage plans get paid lump monthly sums based on how sick their patients are.

Criticism about Medicare Advantage is mounting as the agency that oversees the program considers major changes to how insurers get paid. Under a proposal released in February, average payments would essentially decline more than 2% after stripping out the expected impact of how plans code for patient illnesses. A final decision is due by April 3.

“I support these efforts, which are an important step towards addressing private insurers’ long history of exploiting the government out of billions of dollars,” said Warren, a Massachusetts Democrat, in a letter to Health and Human Services Secretary Xavier Becerra and Chiquita Brooks-LaSure, head of the Centers for Medicare and Medicaid Services.

Humana Inc., which gets most of its revenue from Medicare Advantage, fell as much as 5.3% on Tuesday, the most intraday in nearly two months. UnitedHealth Group Inc. dropped as much as 2.1%, also the most since Feb. 2. The S&P Composite 1500 Managed Health Care index lost as much as 2.3%, underperforming the broader market.

Warren cited a new analysis from former Medicare Administrator Don Berwick that found industry practices could raise costs for people on traditional, government-administered Medicare by $65 billion over eight years. That’s because the government must subsidize overpayments to private insurers with higher premiums for traditional Medicare, Warren said.

A spokesperson for America’s Health Insurance Plans, an industry lobby group, said Medicare Advantage lowers costs for members by $2,400 a year, citing industry-backed research. The group also said federal data show Medicare Advantage has a lower rate of improper payments than traditional Medicare.

A CMS spokesperson said the agency received Warren’s letter and will respond directly.

Fast-Growing Business

The insurance industry has built fast-growing, profitable businesses selling private Medicare Advantage plans, which now cover about half of people on Medicare. Companies including UnitedHealth, Humana and CVS Health Corp. say private plans offer superior coverage, important benefits such as vision and dental care, and lower out-of-pocket costs for seniors. They also point out that the plans serve a large number of low-income seniors and Black and Hispanic communities.

Now lawmakers are paying attention, and not just progressives like Warren, who is running for reelection. Louisiana Republican Bill Cassidy and Oregon Democrat Jeff Merkley introduced a bill in the Senate Tuesday that they said would “save taxpayers billions by eliminating incentives to overcharge Medicare for care.” Cassidy is a physician and the ranking member on the Senate Health, Education, Labor & Pensions Committee.

The Medicare Payment Advisory Commission, a nonpartisan group that advises Congress, has long pointed out that insurers’ approach to diagnostic coding boosts their payments by billions of dollars. The group has said changes to the program are urgently needed.

Cassidy’s involvement shows how political support for the program is shifting quickly. In January he was among 61 senators who signed a letter circulated by the industry lobby group Better Medicare Alliance supporting “a stable rate and policy environment” for the program.

His bill with Merkley would bar health insurers from getting paid for diagnoses made from medical charts and health-risk assessments, two strategies insurers have embraced to collect more data about their members and increase their payments. It would also require the government to fully account for differences in coding patterns between Medicare Advantage and the rest of the program.

--With assistance from Bre Bradham.

(Updates with share moves in fifth paragraph, additional details on Cassidy bill in final paragraph)

©2023 Bloomberg L.P.